IP and Discussing Ideas with Potential Investors

Every entrepreneur fears having their ideas knocked off by larger companies with more resources. Examples of intellectual property can be found in almost everything we do from clothing, to music, to cars. Intellectual property rights are some of the most important things an entrepreneur may possess in order to succeed and differentiate his product or service. There are four types of intellectual property: trademark, patent, copyright, and trade secret.

Trademarks are words, symbols, colors, sounds, smells, or slogans that a company or entrepreneur is using along with his product or service. The use of the mark is a technique for providing marketing advantages for the owner of a trademark. In theory, unlike patents and copyrights, trademarks can technically last forever as long as the company is still using its trademark along with its good or service. In the United States, the trademark is registered with the Patent and Trademark Office. You may need an attorney to assist you with this process.

A patent protects an entrepreneur or company’s inventions. You can search whether someone has already patented a product at the USPTO.gov website or even through a quick Google search. When you are filing for a patent in the United States, there is still potential for intellectual property theft of your product in other countries. For international patent protection, the Office of International Patent Cooperation can help you establish the best strategy for protecting your patent internationally, while navigating the different patent protection rules and treaties throughout the globe.

A copyright protects an author’s original work. Copyright law is dictated by the federal Copyright Act of 1976. This Act was enacted to “promote the progress of science and the useful art, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

Trade secrets are manufacturing secrets, commercial secrets, or secret information used by a company or an entrepreneur. An unauthorized usage of these secrets by anyone other than the owner of the trade secret is considered a violation of the trade secret.

Explore the above types of intellectual property to figure out which will be best strategy for protecting your IP.

Trademarks, patents and copyrights are subject to state and federal registration. The registration is required to put the world on notice that somebody’s proprietary rights are attached to the subject matter. It does not grant the right, the right emerges automatically upon the creation of the product or its use on the market before others, but it gives a solid proof of someone’s ownership and often helps to avoid protracted and costly litigation.

Since the registration of the IP “puts the world on notice” of its existence, obviously trade secrets cannot be registered; otherwise it won’t be a secret any longer. So how to protect the ideas, know how, and other business information the value of which steams from the fact that is not known by the general public? Here all sorts of non-disclosure agreements come to play. Non-disclosure or confidentiality agreements put obligations on the party who receive the information to keep it confidential and not to use it for that party’s own benefit or for the benefit of any third party. Non-disclosure agreements may be a unilateral or mutual. A unilateral, or also referred to as a one-way non-disclosure agreement, is a legal contract where only one party is receiving the confidential information and another party is protecting it. A mutual non-disclosure agreement is created when there are multiple parties disclosing information to each other that they want to keep confidential. The contract prevents each party involved from sharing the confidential information with the outside world.

What should entrepreneurs do or consider when discussing their ideas with potential investors? If your IP is subject to the registration, the answer is simple – register it. If it is an idea for a business or other proprietary information that an entrepreneur wants to keep in secret, have a receiving party to execute a non-disclosure agreement. Do not be surprised if an investor refuses to sign an NDA. Investors may receive hundreds of proposals and they may be reluctant to become a party to a legally binding document before they even have an idea whether your product/service/other information is of value to them. We recommend structuring your pitch in a way that gives enough information to the investor about your idea, but not enough details for its independent implementation. Also remember that usually investors are not in the business of stealing ideas and pursuing them by themselves. They invest in the team as much as they invest in the product or service. If you possess the right skills and knowledge, it is much more efficient to have you do the work.

There are always some risks involved that your idea will be stolen. It is important to balance potential risks when sharing your confidential information with others against the possible lost opportunity if not letting others to contribute into its realization. The rule of thumb is - disclose only on as-needed basis and know whom you are disclosing to. Have any questions? We are here to help.